UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A*
(Amendment No. 1 to Form-10 QSB)
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: October 30, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period _________________to_______________
Commission File Number: 0-25002
TELEHUBLINK CORPORATION
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(Exact Name of Small Business Issuer as Specified in Its Charter)
DELAWARE 59-3200879
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(State or Other Jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization)
24 NEW ENGLAND EXECUTIVE PARK*
BURLINGTON, MA 01803
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(Address of Principal Executive Offices) (Zip Code)
Issuer's Telephone Number: (781) 229-1102
N/A
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(Former Name, Former Address, and Former Fiscal Year, if Changed Since
Last Report)
State the number of shares outstanding of each of the issuer's classes of common
equity, as the latest practicable date: At December 17, 1999, there were
18,753,442 shares outstanding of common stock, $.01 par value per share.
Transitional Small Business Disclosure Format (check one): [ ] Yes [X] No
<PAGE>
TELEHUBLINK CORPORATION
INDEX
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets - October 30, 1999 (unaudited)
and January 30,1999 .................................................... 3
Condensed Consolidated Statements of Operations for the Thirteen Weeks
Ended October 30, 1999 and October 31, 1998 and the Thirty-Nine Weeks
Ended October 30, 1999 and the period from inception (July 31, 1998) to
October 31, 1998 (unaudited) ........................................ 4
Condensed Consolidated Statements of Cash Flows for the Thirteen Weeks
Ended October 31, 1999 and October 31, 1998 and the Thirty-Nine Weeks
Ended October 30,1999 and the period from inception (July 31, 1998) to
October 31, 1998 (unaudited) ........................................... 5
Notes to Condensed Consolidated Financial Statements....................... 6
Item 2. Management's Discussion and Analysis or Plan of Operation.......... 9
PART II. OTHER INFORMATION
Item 2. Change in Securities and Use of Proceeds......................... 15
Item 6. Exhibits and Reports on Form 8-K ................................ 15
SIGNATURES............................................................... 16
* This amended Form 10-QSB is being filed to reflect the restatement of certain
previously reported financial information as more fully described in Note 6 of
Notes to Condensed Consolidated Financial Statements and certain portions of
Part I-Item 2-Management's Discussion and Analysis or Plan of Operation and
Exhibit 27-Financial Data Schedule have been amended to reflect the restatement.
The remaining information in this amended Form 10-QSB has not been updated to
reflect any changes in information that may have occurred subsequent to the date
of the reporting period to which the Form 10-QSB relates. For more recent
information regarding the Company and current developments, reference is made to
the Company's Form 10-KSB as filed on July 19, 2000, Form 10-QSB/A filed on July
24, 2000 and Form 10-QSB/A filed on September 12, 2000.
<PAGE>
TELEHUBLINK CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
OCTOBER 30, JANUARY 30,
ASSETS 1999 1999
(AS RESTATED, SEE NOTE 6)
------------------------- -----------
(Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 203,195 $ --
Accounts receivable, net 307,060 20,030
Prepaid expenses and other current assets 94,310 87,579
----------- -----------
Total current assets 604,565 107,609
Property and equipment, net 236,678 204,791
Intangible assets, net 560,879 --
Other assets 7,756 27,195
----------- -----------
Total assets $ 1,409,878 $ 339,595
=========== ===========
Liabilities and Stockholder's Equity
Current Liabilities:
Accounts payable $ 136,862 $ 17,910
Accrued expenses 395,033 44,508
Accrued merger costs 365,000 --
Subordinated convertible debentures, net 151,000 --
Equipment loan 206,924 202,866
----------- -----------
Total current liabilities 1,254,819 265,284
----------- -----------
Total liabilities 1,254,819 265,284
----------- -----------
Stockholders' Equity:
Common stock 187,534 130,114
Additional paid-in capital 3,416,353 167,419
Deferred compensation (5,500) --
Accumulated deficit (3,443,328) (223,222)
----------- -----------
Total stockholders' equity 155,059 74,311
----------- -----------
Total liabilities and stockholders' equity $ 1,409,878 $ 339,595
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
TELEHUBLINK CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED THIRTEEN WEEKS ENDED
OCTOBER 30, 1999 OCTOBER 31, 1998
(AS RESTATED, SEE NOTE 6) (AS RESTATED, SEE NOTE 6)
------------------------- -------------------------
<S> <C> <C>
Revenue $ 212,043 $ 82,729
Cost of revenue 131,215 42,559
------------ ------------
Gross profit 80,828 40,170
------------ ------------
Operating expenses:
Stock-based charges 81,100 --
Selling, general and administrative expenses 756,705 66,340
Operating losses of WEC prior to acquisition 20,135 --
------------ ------------
Total operating expenses 857,940 66,340
------------ ------------
Operating loss (777,112) (26,170)
Interest and other income 2,027 --
Interest expense (145,650) --
------------ ------------
Net loss (920,735) (26,170)
Charge for pricing modification of warrants -- --
------------ ------------
Net loss available to common stockholders $ (920,735) $ (26,170)
============ ============
Basic and diluted net loss per share $ (.05) $ --
============ ============
Weighted average common shares of common
stock outstanding used in computing basic
and diluted net loss per share 18,596,517 10,185,172
============ ============
<CAPTION>
PERIOD FROM
THIRTY-NINE WEEKS ENDED INCEPTION (JULY 31, 1998)
OCTOBER 30, 1999 TO OCTOBER 30, 1998
(AS RESTATED, SEE NOTE 6) (AS RESTATED, SEE NOTE 6)
------------------------- -------------------------
<S> <C> <C>
Revenue $ 1,023,120 $ 82,729
Cost of revenue 600,011 42,559
------------ ------------
Gross profit 423,109 40,170
------------ ------------
Operating expenses:
Stock-based charges 1,880,390 --
Selling, general and administrative expenses 1,202,237 66,340
Operating losses of WEC prior to acquisition 178,135 --
------------ ------------
Total operating expenses 3,260,762 66,340
------------ ------------
Operating loss (2,837,653) (26,170)
Interest and other income 16,496 --
Interest expense (170,149) --
------------ ------------
Net loss (2,991,306) (26,170)
Charge for pricing modification of warrants (228,800) --
------------ ------------
Net loss available to common stockholders $ (3,220,106) $ (26,170)
============ ============
Basic and diluted net loss per share $ (.18) $ --
============ ============
Weighted average common shares of common
stock outstanding used in computing basic
and diluted net loss per share 18,051,106 10,185,172
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
TELEHUBLINK CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED THIRTEEN WEEKS ENDED
OCTOBER 30, 1999 OCTOBER 31, 1998
------------------------- -------------------------
(AS RESTATED, SEE NOTE 6) (AS RESTATED, SEE NOTE 6)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (920,735) $ (26,170)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 48,324 5,165
Amortization of debt discount 129,300 --
Stock-based charges 81,100 --
Operating losses of WEC prior to acquisition 20,135 --
Changes in operating assets and liabilities,
net of impact of business acquisitions:
Accounts receivable 77,537 --
Prepaid expenses and other current assets (41,383) (29,333)
Other assets 3,965 (10,574)
Accounts payable 17,551 --
Accrued expenses 240,448 15,885
----------- -----------
Net cash used in operating activities (343,758) (45,027)
----------- -----------
Cash flows from investing activities:
Acquisitions of businesses, net of cash acquired (150,000) --
Purchases of customer lists (54,096) --
Purchases of property and equipment (20,765) (191,828)
Other -- (20,000)
----------- -----------
Net cash used in investing activities (224,861) (211,828)
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock 725,000 62,296
Proceeds from issuance of subordinated convertible
debentures -- --
Advances to WEC (53,000) --
Repayments from WEC 32,865 --
Proceeds of equipment loan, net 2,486 199,863
----------- -----------
Net cash provided by financing activities 707,351 262,159
----------- -----------
Net increase in cash and cash equivalents 138,732 5,304
Cash and cash equivalents, beginning of period 64,463 --
----------- -----------
Cash and cash equivalents, end of period $ 203,195 $ 5,304
=========== ===========
Supplemental disclosure information:
Cash paid during the period for interest $ 1,400 $ --
=========== ===========
Non-cash investing and financing activities:
Net liabilities assumed on reverse merger with
WAW (See Note 2) $ -- $ --
=========== ===========
Debt discount from beneficial conversion feature
of subordinated convertible debentures $ -- $ --
=========== ===========
Charge for pricing modification of warrants $ -- $ --
=========== ===========
Notes issued for common stock $ -- $ 67,812
=========== ===========
Business acquisitions:
Fair value of assets acquired $ 352,500 $ --
Issuance of common stock (202,500) --
----------- -----------
Cash paid $ 150,000 $ --
=========== ===========
<CAPTION>
PERIOD FROM
THIRTY-NINE WEEKS ENDED INCEPTION (JULY 31, 1998) TO
OCTOBER 30, 1999 OCTOBER 31, 1998
------------------------- -------------------------
(AS RESTATED, SEE NOTE 6) (AS RESTATED, SEE NOTE 6)
<S> <C> <C>
Cash flows from operating activities:
Net loss $(2,991,306) $ (26,170)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 80,450 5,165
Amortization of debt discount 151,000 --
Stock-based charges 1,880,390 --
Operating losses of WEC prior to acquisition 178,135 --
Changes in operating assets and liabilities,
net of impact of business acquisitions:
Accounts receivable (287,030) --
Prepaid expenses and other current assets (1,800) (29,333)
Other assets 11,690 (10,574)
Accounts payable 123,595 --
Accrued expenses 148,322 15,885
----------- -----------
Net cash used in operating activities (706,554) (45,027)
----------- -----------
Cash flows from investing activities:
Acquisitions of businesses, net of cash acquired (230,000) --
Purchases of customer lists (104,649) --
Purchases of property and equipment (71,739) (191,828)
Other -- (20,000)
----------- -----------
Net cash used in investing activities (406,388) (211,828)
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock 890,214 62,296
Proceeds from issuance of subordinated convertible
debentures 600,000 --
Advances to WEC (211,000) --
Repayments from WEC 32,865 --
Proceeds of equipment loan, net 4,058 199,863
----------- -----------
Net cash provided by financing activities 1,316,137 262,159
----------- -----------
Net increase in cash and cash equivalents 203,195 5,304
Cash and cash equivalents, beginning of period -- --
----------- -----------
Cash and cash equivalents, end of period $ 203,195 $ 5,304
=========== ===========
Supplemental disclosure information:
Cash paid during the period for interest $ 4,199 $ --
=========== ===========
Non-cash investing and financing activities:
Net liabilities assumed on reverse merger with
WAW (See Note 2) $ 569,451 $ --
=========== ===========
Debt discount from beneficial conversion feature
of subordinated convertible debentures $ 600,000 $ --
=========== ===========
Charge for pricing modification of warrants $ 228,800 $ --
=========== ===========
Notes issued for common stock $ -- $ 67,812
=========== ===========
Business acquisitions:
Fair value of assets acquired $ 500,900 $ --
Issuance of common stock (270,900) --
----------- -----------
Cash paid $ 230,000 $ --
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
TELEHUBLINK CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
OCTOBER 30, 1999
(1) BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements of
Telehublink Corporation (the "Company") have been prepared in accordance
with the instructions to Form 10-QSB and do not include all of the
information and notes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments, consisting of normal recurring adjustments,
considered necessary for a fair presentation have been included. These
unaudited interim financial statements should be read in conjunction with
the Company's Annual Report on Form 10-KSB for the fiscal year ended
January 29, 2000 filed on July 19, 2000.
The unaudited consolidated condensed financial statements have not been
examined by independent accountants in accordance with generally accepted
auditing standards, but in the opinion of management, such financial
statements include all adjustments, consisting only of normal recurring
adjustments, necessary to summarize fairly the Company's financial
position and results of operations.
(2) MERGER WITH WHAT A WORLD
On February 4, 1999, What A World!, Inc. ("WAW"), a publicly-held "shell
company," acquired all the issued and outstanding capital stock of Tele
Hub Link Corporation ("TeleHub") (the "Company"), a privately-held
company organized under the laws of the Province of Ontario, Canada,
engaged in the business of providing teleservices. Pursuant to a Share
Purchase Agreement dated December 21, 1998, WAW acquired all the issued
and outstanding common stock of TeleHub in exchange for an aggregate of
13,011,339 shares of WAW common stock (or 3.9252318 shares of WAW's
common stock for each share of TeleHub common stock) and, as a result
thereof, TeleHub became a wholly owned subsidiary of WAW. In addition, in
connection with the TeleHub transaction, WAW amended its Certificate of
Incorporation in order to change its legal name to TeleHubLink
Corporation.
For accounting purposes, this transaction has been treated as a reverse
acquisition. TeleHub has been deemed the acquiring enterprise for
financial statement purposes, as it received a majority of the voting
interests in the combined enterprise. The SEC staff has taken the
position that a business combination between an operating enterprise and
a "shell company" in which the shell company is the issuer of securities
and the operating enterprise is determined to be the acquiring enterprise
for financial statement purposes, the transaction should be treated for
financial statement purposes as an issuance of securities by the
operating enterprise. Therefore, the tangible net liabilities of WAW at
the date of the transaction of approximately $207,288 have been recorded
at their fair value with an offset credit to paid-in capital and the
operations of WAW are reflected in the operations of the combined
enterprise from the date of acquisition. In addition, the 1999 financial
statements have been retroactively restated to reflect the number of
shares TeleHub received in the business combination. Costs related to
this transaction of approximately $362,163 have been charged directly to
paid-in capital. Two directors and principal shareholders of WAW prior to
the acquisition were also shareholders of TeleHub owning, directly and
indirectly, approximately 13% of the outstanding common shares.
<PAGE>
(3) SALES OF COMMON STOCK
On August 16, 1999, the Company consummated a private placement
pursuant to which it sold 13.5 units for gross proceeds of $675,000,
and in September 1999, the Company sold an additional unit for gross
proceeds of $50,000. Each unit consisted of 40,000 shares of the
Company's common stock. In connection with such private placement, the
Company sold an aggregate of 580,000 shares of common stock for gross
proceeds of $725,000 (the "August/September 1999 Financing"). Proceeds
of the financing will be used for potential acquisitions, for the
payment of certain obligations, to fund working capital requirements of
the Company and for general corporate purposes.
(4) BUSINESS ACQUISITION
On August 20, 1999, the Company acquired all of the assets of Sports
and Entertainment Marketing International, Inc. ("SEMI"), a privately
held Canadian company, of which the former president of Web Traffic,
Inc. was also a director and shareholder. The total consideration was
$352,500, which was comprised of $150,000 in cash and 200,000 shares of
the Company's restricted common stock. SEMI is engaged in the
development and production of strategic marketing concepts relating to
various sports, sporting events, shows memorabilia and products. The
acquisition was accounted for under the purchase method, and
accordingly, the purchase price was allocated to the identifiable
tangible and intangible assets based on their estimated fair values.
The Company allocated approximately $11,000 to acquired merchandise and
$341,500 to contract and marketing rights. The Company is amortizing
the contract and marketing rights over a five-year period.
(5) STOCK OPTION GRANT
On August 31, 1999, the Company granted to third-party consultants for
the Company, in consideration for services to be rendered over a
three-month period, options to purchase an aggregate of 50,000 shares.
All of such options are exercisable at a price of $1.50 per share, the
fair market value of the Company's common stock on the date of grant,
and vest on the first anniversary of the date of grant. The Company
calculated the value of the stock option grant using the Black-Scholes
option valuation model. The estimated value of the stock options of
$52,300 was amortized over the period of service.
In October 1999, the Company granted to a third-party consultant, for
services rendered by him, options to acquire an aggregate of 25,000
shares, all of which options are exercisable at a price of $.9375, the
fair market value of the Company's common stock on the date of grant,
and vest on the first anniversary of the date of grant. The Company
calculated the value of the stock option grant using the Black-Scholes
option valuation model. The estimated value of the stock options of
$16,300 was recognized on the date of grant.
In October 1999, the Company granted to an employee options to purchase
50,000 unregistered shares of the Company's common stock at an exercise
price of $.06. The options vested immediately. The Company recognized
an expense of $53,800 for the difference between the fair value of the
stock options and the exercise price.
(6) RESTATEMENT
The consolidated financial statements for the thirteen weeks ended
October 30, 1999 and October 31, 1998 have been restated to reflect
various adjustments to the previously reported financial statements.
The following table sets forth the impact on the consolidated
statements of operations and consolidated balance sheet:
<PAGE>
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED THIRTEEN WEEKS ENDED
OCTOBER 30, 1999 OCTOBER 31, 1998
----------------------------- ------------------------
AMOUNT AMOUNT
PREVIOUSLY AS RESTATED PREVIOUSLY AS RESTATED
REPORTED REPORTED
----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Statement of Operations:
Revenue $ 212,043 $ 212,043 -- $ 82,729
Cost of revenue 131,215 131,215 -- 42,559
Gross profit 80,828 80,828 -- 40,170
Operating losses of WEC prior to acquistion -- 20,135 -- --
Stock-based charges -- 81,100 -- --
Selling, general and administrative
expenses 320,105 756,705 21,446 66,340
Other income (expense) (14,323) (143,623) 629 --
Net loss (253,600) (920,735) (20,817) (26,170)
Basic and diluted net loss per share (.01) (.05) (.01) --
Balance Sheet:
Cash and cash equivalents 203,195 203,195
Total assets 1,979,613 1,409,878
Accumulated deficit (517,266) (3,443,328)
Total stockholders' equity 564,106 155,059
</TABLE>
The amounts shown as previously reported for the thirteen weeks ended
October 30, 1999 and October 31, 1998 are as reported in the Company's
previously filed Form 10-QSB. The previously filed 10-QSB for the
quarter ended October 30, 1999 compared the current operating results
of the Company to the prior operating results of WAW. As a result of
the reverse merger, Telehub has been deemed the acquiring enterprise;
therefore, for financial reporting purposes the third quarter results
of fiscal 1998 (October 31, 1998) should have been TeleHub's operating
results and not WAW's operating results. TeleHub began its operations
on July 31, 1998
Adjustments to the consolidated financial statements for the quarter
ended October 30, 1999 reflect fourth quarter charges recorded by the
Company and are reflected in the Company's fiscal 2000 Form 10-KSB
filed on July 19, 2000. A summary of the significant adjustments that
impacted the previously reported third fiscal quarter results is as
follows.
o To record losses of $20,135 in the third fiscal quarter, on the advances to
WEC.
o To record non-cash stock-based compensation charges of $81,100, in the
third fiscal quarter, in connection with the granting of stock options to
employees and consultants.
o To record amortization of $129,300, in the third fiscal quarter, relating
to the debt discount resulting from the conversion feature of the
subordinated convertible debt.
<PAGE>
o To write-off capitalized organizational costs of $161,000 in the third
fiscal quarter.
o To record an entry of $200,000 for legal fees which was incorrectly
capitialized as an asset.
o To record amoritization expense on $21,200 on intangible assets acquired
through business acquisitions.
o To accrue salaries and vacation time earned by employees of $54,400 in
the third fiscal quarter.
(7) SUBSEQUENT EVENT
On December 8, 1999, the Company entered into a letter of intent to
acquire from Lyon Investments, a Canadian holding company, all of the
outstanding shares of Platinum 2000 ("Platinum"), a Canadian company
engaged in the development and sale of group discount packages to
consumers through teleservicing companies throughout the United States
and Canada. In consideration for the Platinum shares, the Company will
pay one-half of specified net profits and may also issue up to
1,300,000 shares of its common stock depending on the satisfaction of
certain performance targets by Platinum during the one-year period
following the acquisition. The Company has also agreed to pay certain
brokers fees incurred by Platinum in connection with the acquisition,
which payment shall consist of $100,000 in cash plus 200,000 shares of
the Company's common stock. Consummation of the acquisition is subject
to certain conditions, including completion of due diligence and
preparation of a definitive purchase agreement. There can be no
assurance that the parties to the acquisition will enter into a
definitive agreement or that, if a definitive agreement is entered
into, the acquisition will be completed or, if completed, that the
acquisition would generate meaningful revenues or profits for the
Company.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
GENERAL
TeleHubLink Corporation (formerly known as What A World!, Inc.)(the
"Company") was incorporated under the laws of the State of Delaware in July
1993. Until May 1997, the Company operated as a mall-based specialty retailer of
a wide assortment of products which targeted customers having an active interest
in nature, the environment, education, wildlife, the outdoors and science. In
May 1997, the Company sold substantially all of its assets to Natural Wonders,
Inc. for cash in the amount of $517,795 plus the assumption by Natural Wonders,
Inc. of specified liabilities (the "1997 Sale"). The completion of the 1997 Sale
terminated the Company's specialty retail operations. For the period May 1997
through February 3, 1999, the Company had no operating business and sought to
serve as a vehicle to effect an acquisition, whether by merger, exchange of
capital stock, acquisition of assets or other similar business combination. On
February 4, 1999, the Company acquired all the issued and outstanding capital
stock of Tele Hub Link Corporation ("TeleHub"), a privately-held company
organized under the laws of the Province of Ontario, Canada, that is engaged in
the business of providing teleservices. Pursuant to a Share Purchase Agreement
dated as of December 21, 1998 (as amended, the "Share Purchase Agreement")
between the Company, TeleHub and the shareholders of TeleHub (the "TeleHub
Shareholders"), the Company acquired from the TeleHub Shareholders all of the
issued and outstanding capital stock of TeleHub in exchange for an aggregate of
13,011,339 shares (the "Shares") of common stock, par value $.01 per share
("Common Stock"), of the Company (or 3.9252318 shares of the Company's Common
Stock for each share of TeleHub common stock) and, as a result thereof, TeleHub
became a wholly-owned subsidiary of the Company (the "TeleHub Transaction"). In
addition, in connection with the TeleHub Transaction, the Company amended its
Certificate of Incorporation in order to change its name from What A World!,
Inc. to TeleHubLink Corporation. As a result of the 1997 Sale and the TeleHub
Transaction, the Company currently operates as a holding company, the principal
<PAGE>
asset of which is its 100% ownership interest in TeleHub. Accordingly, the
business of the Company is currently conducted primarily through TeleHub.
PLAN OF OPERATION (Restated)
Since the consummation of the TeleHub Transaction, the Company, through its
wholly-owned subsidiary TeleHub, has been primarily engaged in the business of
providing call center teleservices, including both inbound and outbound
teleservices. The Company has not generated any meaningful revenues since the
consummation of the TeleHub Transaction, and there can be no assurance that the
Company's operations will generate profits in the future or that such profits,
if any, would be significant.
The Company is seeking to continue the development of its multi-service
call center "HUB" concept, pursuant to which the Company would act as a central
focus for businesses to outsource typical non-core functions and capitalize on
the network to be established by the Company. In this connection, the Company
offers or proposes to offer the following services: providing call center
teleservices, including inbound and outbound call center activities in
connection with sales, marketing, customer support and product support; selling
local and long distance telecom services; and selling certain cellular and PCS
telephone services. In addition, the Company is also seeking to expand its
operations by servicing the Internet market, and is in the early stages of
establishing a structure to address the emerging Internet "e-commerce" market.
In this connection, the Company has formed a new Internet division which is
engaged in selling client advertisements to Internet malls, facilitating the
creation of web sites for its clients and providing e-commerce fulfillment
services, and is currently in discussions regarding possible acquisitions of
certain Internet-related businesses. In June 1999, the Company acquired all of
the assets of Web Trafic Inc., a privately-held company which has acquired the
rights to sell advertising for e-commerce on iMall, one of the leading
e-commerce websites on the Internet with approximately 1,600 merchants. Web
Trafic serves as an independent Canadian representative for iMall, Inc., and
intends to market its services through its business listings, classified ads,
referral web pages and portals. In consideration for the Web Trafic Inc. assets,
the Company paid $80,000 and issued 100,000 shares of the Company's restricted
common stock. In connection with the acquisition, the Company retained a
management firm operated by the former President of Web Trafic Inc. to assist
the Company in developing its Internet division. There can be no assurance that
this acquisition will generate meaningful revenues or profits for the Company.
In addition, the Company will be required to obtain additional financing in
order to fund the development and operational costs of any companies, including
Web Trafic Inc., acquired by the Company. There can also be no assurance that
the Company will be successful in implementing its "HUB" concept or developing
its teleservices operations or Internet-related businesses.
A key element of the Company's strategy involves growth through
acquisitions of other companies or assets that would complement or expand the
Company's existing business. On May 13, 1999, the Company entered into a letter
of intent to acquire wirelessEncryption.com, a development stage company which
is working on the development of a product which encrypts data at the signal
level while enhancing signal reception and voice quality. The Company presently
anticipates that it may issue up to 5,000,000 unregistered shares of its common
stock in connection with the acquisition of wirelessEncription.com and that it
may also issue up to 4,000,000 additional unregistered shares of its common
stock, depending upon the satisfaction of certain milestones and other
conditions. Consummation of the transaction is subject to completion of due
diligence and preparation of a definitive purchase agreement and related
documentation. Affiliates of Mr. Stanley Young, the former Chairman of the Board
and a former director of the Company, and members of his family own a
substantial equity interest in wirelessEncryption.com. In addition, as described
below under "Recent Developments," on December 8, 1999, the Company entered into
a letter of intent to acquire all of the outstanding shares of Platinum 2000, a
Canadian company engaged in the development and sale of group discount packages
to consumers through teleservicing companies throughout the United States and
Canada. Consummation of the acquisition is subject to certain conditions,
<PAGE>
including completion of due diligence and preparation of a definitive purchase
agreement. There can be no assurance, with respect to either such proposed
acquisition, that the parties to the acquisition will enter into a definitive
agreement or that, if a definitive agreement is entered into, the acquisition
will be completed or, if completed, that the acquisition would generate
meaningful revenues or profits for the Company. In addition, if either or both
acquisitions are consummated, the Company will be required to obtain additional
financing to fund the development and operational costs of the acquired company
or companies.
The Company's long-term strategy is to provide comprehensive
telecommunication-based solutions to facilitate its clients' marketing, sales
and other business objectives. Through relationships with clients and strategic
alliances, and its combination of proposed teleservices activities, the Company
intends to provide its clients with a multi-service call center or "HUB" that
will link clients with their ultimate customers and other organizations across
various complementary industries. In addition, as part of this strategy, the
Company will also seek to introduce its clients to the emerging "e-commerce"
market and to thereby expand its business by providing various Internet services
to its clients.
The Company's proposed plan of operation and prospects will be largely
dependent on the Company's ability to successfully establish and equip
additional call centers on a timely and cost effective basis; hire and retain
skilled technical, marketing and other personnel; successfully expand into the
Internet market and attract and retain significant numbers of clients.
RECENT DEVELOPMENTS
On August 20, 1999, the Company acquired all the assets (including certain
intellectual property rights, contract rights and inventory) of Sports &
Entertainment Marketing International Inc. ("SEMI"), a privately held company
that is engaged in the development and production of strategic marketing
concepts relating to various sports, sporting events, shows, memorabilia, and
products. In consideration for such assets, the Company paid to SEMI $150,000 in
cash and issued 200,000 shares of the Company's restricted common stock. There
can be no assurance that this acquisition will generate meaningful revenues or
profits for the Company.
On December 8, 1999, the Company entered into a letter of intent to acquire
from Lyon Investments, a Canadian holding company, all of the outstanding shares
of Platinum 2000 ("Platinum"), a Canadian company engaged in the development and
sale of group discount packages to consumers through teleservicing companies
throughout the United States and Canada. In consideration for the Platinum
shares, the Company will pay one-half of specified net profits and may also
issue up to 1,300,000 shares of its common stock depending on the satisfaction
of certain performance targets by Platinum during the one-year period following
the acquisition. The Company has also agreed to pay certain brokers fees
incurred by Platinum in connection with the acquisition, which payment shall
consist of $100,000 in cash plus 200,000 shares of the Company's common stock.
Consummation of the acquisition is subject to certain conditions, including
completion of due diligence and preparation of a definitive purchase agreement.
There can be no assurance that the parties to the acquisition will enter into a
definitive agreement or that, if a definitive agreement is entered into, the
acquisition will be completed or, if completed, that the acquisition would
generate meaningful revenues or profits for the Company.
RESULTS OF OPERATIONS (Restated)
As discussed in note 2 to the condensed consolidated financial statements,
as a result of the reverse merger between WAW and TeleHub, TeleHub has been
deemed the acquiring enterprise for financial reporting purposes. TeleHub began
its
<PAGE>
operations on July 31, 1998, and accordingly TeleHub's results of operations for
the period from inception to October 31, 1998 have been presented as comparative
figures.
THIRTEEN WEEKS ENDED OCTOBER 30, 1999 AND OCTOBER 31, 1998 AND THE THIRTY-NINE
WEEKS ENDED OCTOBER 30, 1999 AND THE PERIOD FROM INCEPTION (JULY 31, 1998) TO
OCTOBER 31, 1998.
Net sales for the thirteen weeks ended October 30, 1999 (the "Third Quarter
of Fiscal 2000") were $212,043 as compared to net sales of $82,729 for the
comparable thirteen weeks ended October 31, 1998 (the "Third Quarter of Fiscal
1999"). The Company commenced operations on July 31, 1998 and has expanded
operations resulting in an increase in net sales in the Third Quarter of Fiscal
2000 as compared to the Third Quarter of Fiscal 1999. Net sales for the
thirty-nine weeks ended October 30, 1999 were $1,023,120 as compared with
$82,729 for the period from inception (July 31, 1998) to October 31, 1998. All
sales were generated from the Canadian call center business.
Gross profit for the Third Quarter of Fiscal 2000 was $80,828 or 38.1% of
sales, as compared with $40,170 or 48.6% of sales for the Third Quarter of
Fiscal 1999. The decreased margin percentage for the Third Quarter of Fiscal
2000 as compared to the Third Quarter of Fiscal 1999 was due to the ramp-up of
operations including increases in the number of call center personnel resulting
in higher costs. Gross profit for the first thirty-nine weeks of fiscal 2000 was
$423,109 or 41.4% of sales as compared with $40,170 or 48.6% of sales for the
period from inception (July 31, 1998) to October 31, 1998. The decreased margin
percentage was due to the ramp-up of operations including increases in the
number of call center personnel resulting in higher costs.
Stock-based charges for the Third Quarter of Fiscal 2000 were $81,100.
These non-cash charges were the result of stock-based compensation charges
relating to stock option grants to certain employees and outside third parties.
There were no stock options outstanding during the period from inception (July
31, 1998) to October 31, 1998. Stock based charges for the first thirty-nine
weeks of fiscal 2000 of $1,880,390 were the result of stock-based compensation
charges relating to stock option grants to certain employees and outside third
parties during the period.
Selling, general and administrative expenses ("SG&A") were $756,705 in
the Third Quarter of Fiscal 2000 and $1,202,237 in the first thirty-nine weeks
of fiscal 2000 as compared with approximately $66,340 for the Third Quarter of
Fiscal 1999 and the period from inception (July 31, 1998) to October 31, 1998,
respectively. The primary components of SG&A are rent, salaries (including
commissions and fringe benefits), consulting fees, depreciation, travel and
promotion, and corporate overhead expenses (including primarily professional
fees, insurance, administrative salaries). The increase in selling, general and
administrative expenses during the Third Quarter of Fiscal 2000 and the
thirty-nine weeks ended October 30, 1999 were due to an overall increase in
operations.
The operating losses of wirelessEncryption.com for the Third Quarter of
Fiscal 2000 represent the write-off of advances from the Company to
wirelessEncryption.com during the quarter. The advances are being written off as
the Company is the only funding source of WEC to date and repayment is not
ensured.
Interest expense for the Third Quarter of Fiscal 2000 includes
amortization totaling $129,300 relating to the discount recorded on the
subordinated convertible debentures plus accrued interest on the subordinated
convertible debentures. Interest expense for the first thirty-nine weeks of
fiscal 2000 includes amortization totaling $151,000 relating to the discount
recorded on the subordinated convertible debentures plus accrued interest on the
subordinated convertible debentures.
No provision for income taxes has been recorded for any period
presented as the Company has incurred net operating losses for tax purposes. The
Company established a full valuation allowance against its deferred tax assets
because we
<PAGE>
believe it is more likely than not the tax benefits may not be realized under
the criteria established by SFAS No. 109.
LIQUIDITY AND CAPITAL RESOURCES (Restated)
The Company had working capital deficits of approximately $(650,254) and
$(157,675) at October 30, 1999 and January 30, 1999, respectively. Since the
TeleHub Transaction, the Company's primary ongoing capital requirements have
been and are anticipated to be for funding its operations and exploring and
developing opportunities in the call center teleservices industry and in
expanding its business into servicing the Internet market.
In July 1999, the Company consummated the July 1999 Private Financing,
pursuant to which it sold a total of 24 units, by means of a private placement,
for gross proceeds of $600,000. Each unit consisted of a 10% subordinated
convertible debenture due July 13, 2000 in the principal amount of $25,000. The
Company will be required to issue up to an aggregate of 1,200,000 shares of
common stock in the event all of the debenture holders elect to convert their
debentures on the maturity date thereof. In addition, pursuant to the terms of
such offering, the company will also be required to issue, on the maturity date
of the debentures, warrants to purchase an aggregate of from 150,000 shares of
common stock (if no debenture holders elect to convert their debentures) to
1,200,000 shares of common stock (if all debenture holders elect to convert
their debentures). A portion of the proceeds of such financing was used to fund
certain cash costs associated with the acquisition of Web Trafic Inc. and the
payment of certain past due obligations, and the balance was used to fund
additional future acquisitions, if any, and to fund working capital and general
corporate purposes.
In August and September 1999, the Company consummated the August/September
1999 Financing pursuant to which it issued 580,000 shares of common stock for an
aggregate of $725,000. Proceeds of the financing were used for the payment of
certain obligations and to fund working capital requirements of the Company and
for general corporate purposes.
As described above, the Company currently anticipates that it will continue
to seek additional financing from several sources, including private placements
of debt and/or equity securities, in order to fund its business expansion plans,
including funding acquisition opportunities which may arise, and to provide
short-term working capital. There can be no assurance that additional financing
will be available to the Company on commercially reasonable terms, or at all.
Any inability to obtain additional financing could have a materially adverse
effect on the Company, including possibly requiring the Company to significantly
curtail, and possibly causing the Company to cease, its operations. In addition,
any equity financing may involve substantial dilution to the interests of the
Company's then existing stockholders. Further, there can be no assurance that
the Company will achieve profitability or positive cash flow.
During the first thirty-nine weeks of fiscal 2000, cash increased by
approximately $203,195. The overall increase in cash resulted primarily from the
cash received from the Company's July 1999 Private Financing arrangement and the
August/September 1999 Private Financing arrangement.
FORWARD-LOOKING STATEMENTS
Certain statements in the foregoing discussion of financial condition and
the results of operations, or elsewhere in this document, represent
"forward-looking" statements as defined in the Private Securities Litigation
Reform Act of 1996. Such statements involve matters that are subject to risks
and uncertainties, as a result of which actual future results or events may
differ materially depending on a variety of factors.
The Company's future operations are subject to various risk factors,
including the following: the limited funds currently available to the Company
<PAGE>
may not be adequate for the Company to pursue its business objectives, and there
is no assurance funds will be available from any source and, if not available,
the Company will be required to limit its operations to those that can be
financed from existing funds; TeleHub has a limited operating history and there
can be no assurance that any of its future activities will be profitable; as a
holding company, the Company's success will depend on the operations, financial
condition and management of TeleHub and any other companies which the Company
may acquire, and in the event the Company does not have the resources or is
otherwise unable to diversify its operation into a number of areas, the Company
may become subject to economic fluctuations within a particular business or
industry and thereby increase the risks associated with its operations; the
Company may be unable to successfully complete acquisitions of assets or
complementary companies which are necessary to expand its business, and may be
unable to integrate into its operations any such businesses or assets acquired
by it; TeleHub is a start-up company and, as such, may become subject to the
problems, expenses, difficulties, complications and delays that are frequently
encountered by a company establishing a new business; TeleHub may be unable to
secure teleservices contracts with clients or generate revenues under any such
contracts it does secure; TeleHub may be unable to successfully develop and
utilize its acquired infrastructure and develop databases to perform
teleservices for its clients and may be unable to successfully implement
marketing and sales methods for its services or expand into new areas, including
Internet and "e-commerce" related businesses; TeleHub may be unable to acquire
and implement quality telecommunications and computer technology and end user
database and software products necessary for its operations; TeleHub may be
unable to respond to changing technological developments and acquire and
implement new equipment and systems to meet changing customer needs on a timely
and cost-effective basis; TeleHub may be unable to adequately ensure that its
operations will not be adversely impacted by the Year 2000 Issue; TeleHub's
inability to obtain adequate local or long distance telephone service, or any
interruption in such service or rate increases relating thereto, could
materially adversely affect TeleHub's business, results of operations and
financial condition; TeleHub may not be able to procure, hire and train on a
timely basis a sufficient labor force of qualified employees or independent
contractors in connection with an increase, if any, in the volume of its
teleservices business; TeleHub's failure to retain the service of its key
employees or its failure to retain additional qualified management personnel to
support its planned growth could have a material adverse effect on TeleHub; the
teleservices industry is highly competitive and is characterized by low barriers
to entry and rapid growth, and TeleHub may not be able to compete effectively
against its current competitors or future competitors, many of whom may be
substantially larger and better capitalized than TeleHub; and any changes to
existing Canadian or U.S. federal, provincial or state laws or regulations
governing TeleHub's business, or any additional laws or regulations, could limit
TeleHub's current or future activities or could significantly increase TeleHub's
cost of compliance.
YEAR 2000 COMPLIANCE
The Year 2000 issue results from computer programs written using two
digits rather than four to define the applicable year. Any computer programs
that have date-sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices or engage
in similar normal business activities.
The Company has made an assessment with regard to whether its own internal
information systems are Year 2000 compliant. Since February 1999, in addition to
updating employee computers and workstations, the Company has upgraded various
accounting, telecommunications, customer care systems and transaction systems at
an aggregate cost of approximately $150,000, with systems that are warranted by
the vendors to be Year 2000 compliant. To the extent the Company purchases
additional systems, it will require that such systems are warranted by the
vendors to be Year 2000 compliant. The Company's existing vendors have assured
the Company that such systems are warranted to be Year 2000 compliant. The
Company employs a Director of Operations who oversees information systems and
<PAGE>
whose responsibilities include oversight of Year 2000 compliance. The Company
does not separately track the internal costs incurred for Year 2000 projects,
which are principally the related payroll costs for its information systems
personnel. Although the Company does not believe that any additional Year 2000
compliance-related costs will be significant, there can be no assurance that
costs incurred to address unanticipated issues would not have a material adverse
effect on the Company's business, operating results and financial conditions.
Any failure of third-party equipment or software comprising any part of the
Company's systems to operate properly with regard to Year 2000 and thereafter
could require the Company to incur unanticipated expenses to address associated
problems, which could have a material adverse effect on the Company's business,
operating results and financial condition.
The Company believes, based on an internal assessment, that the Company's
telecommunications hardware and current versions of its software products are
Year 2000 compliant. The Company has no plan to ascertain whether the internal
systems and products of its potential future customers are Year 2000 compliant.
The Company may in the future be subject to claims based on Year 2000 problems
in others' products or issues arising from the integration of multiple products
within an overall system. Although the Company has not been involved in any
litigation or proceeding to date involving its services related to Year 2000
issues, there can be no assurance that it will not in the future be required to
defend its services or to negotiate resolutions of claims based on Year 2000
issues. The costs of defending and resolving Year 2000-related disputes, and any
of our liabilities for Year 2000-related damages, including consequential
damages, could have a material adverse effect on the Company's business,
operating results and financial condition.
The Company does not have any specific contingency plans if any Year 2000
problems develop with respect to its systems or systems acquired from vendors.
Contingency plans will be developed if the Company identifies instances of
noncompliance and such noncompliance is expected to have a material adverse
impact on our operations. The cost of developing and implementing such plans may
itself be material. However, the Company does not currently believe that such
contingency plans will be required due to its use of alternative technology
systems at the Company's call center.
Year 2000 issues may affect the purchasing patterns of customers and
potential customers in a variety of ways. Many companies are expending
significant resources to replace or remedy their current hardware and software
systems for Year 2000 compliance. These expenditures may result in reduced funds
available to purchase services such as those offered by the Company. The Company
does not believe that there is any practical way to ascertain the extent of, and
has no plan to address problems associated with, such a reduction in purchasing
resources of its customers. Any such reduction could, however, result in a
material adverse effect on the Company's business, operating results and
financial condition. The Year 2000 problem is pervasive and complex, as
virtually every computer operation will be affected in some way. Consequently,
Year 2000 compliance might not be achieved without significant additional costs
to the Company.
PART II. OTHER INFORMATION
ITEM 2. CHANGE IN SECURITIES AND USE OF PROCEEDS
On August 16, 1999, the Registrant consummated a private placement
pursuant to which it sold 13.5 units for gross proceeds of $675,000 and, on
September 15, 1999 sold an additional unit for gross proceeds of $50,000. Each
unit consisted of 40,000 shares of the Registrant's common stock. In connection
with such private placement, the Registrant sold an aggregate of 580,000 shares
of common stock for gross proceeds of $725,000. Proceeds of the financing were
used for the payment of certain obligations and to fund working capital
requirements of the Registrant and for general corporate purposes. The
Registrant relied upon the exception provided by Section 4(2) of the Securities
Act of 1933, as amended (the "Act"), in connection with the issuance and sale of
such shares.
<PAGE>
On August 20, 1999, the Registrant acquired all of the assets of Sports &
Entertainment Marketing International, Inc. ("SEMI"), a privately held company,
and, in partial consideration for such assets, issued to SEMI 200,000 shares of
the Registrant's common stock. The Registrant relied upon the exception provided
by Section 4(2) of the Act in connection with the issuance and sale of such
shares.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The exhibits were previously filed with the original 10QSB on December 20, 1999.
(a) Exhibits:
11 Statement re Computation of Per Share Earnings (not
required because the relevant computations can be
clearly determined from material contained in the
financial statements included herein).
27 Financial Data Schedule (For SEC Use Only)
99.1 Purchase Agreement between the Company and Sports &
Entertainment Marketing International, Inc.
(b) Reports on Form 8-K:
The Company did not file any reports on Form 8-K during
the thirteen weeks ended October 30, 1999.
SIGNATURES
In accordance with the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TeleHubLink Corporation
Date: November 3, 2000 By: /s/ BRUCE W. YOUNG
----------------------------------
Bruce W. Young
President
Date: November 3, 2000 By: /s/ DOUGLAS MILLER
----------------------------------
Douglas Miller
Vice President of Finance
(Principal Financial and Accounting
Officer)
